Ladies and gentlemen, thank you for standing by. Welcome to the MetLife First Quarter 2023 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, instructions will be given at that time. As a reminder, this conference is being recorded. Before we get started, I refer you to the cautionary note about forward-looking statements in yesterday's earnings release and to risk factors discussed in MetLife's SEC filings. With that, I will turn the call over to John Hall, Global Head of Investor Relations. Pardon me. This is the AT&T operator, we have no sound.

[Technical Difficulty] slides that features, disclosures, GAAP reconciliations and other information, which you should also similarly review. I would like to point out, this is the initial quarter we are reporting our financial results based on the new long duration targeted improvements accounting standard. Please note that prior comparative periods have been recast to conform with LDTI. As usual, after prepared remarks, We will have a Q&A session. In light of the very busy morning, Q&A will end promptly just before the top of the hour. And fairness to everyone, please limit yourself to one question and one follow-up. With that, over to Michel.

Thank you, John, and good morning, everyone. Throughout MetLife's 155 year history, with risk management at our foundation, we have emerged from times of uncertainty in a stronger position and I expect now to be no different. We remain focused on managing risks across economic cycles and controlling the things we can control to deliver for our shareholders and our other stakeholders. Last night, we reported quarterly adjusted earnings of $1.2 billion or $1.52 per share, which compares to $1.7 billion or $2.04 per share a year ago. The quarter's results illustrate MetLife's resilience and underscore our continued strong business momentum and our ability to execute across what we control. We posted strong sales numbers representing responsible growth for most of our key businesses and markets, including Group Benefits, Asia and Latin America. We generated good underwriting results owing to our rigorous price discipline. We continued to manage our costs with vigilance and to beat our expense targets and prudent risk selection helped push recurring investment income higher while new money rate reached 5.8% for the quarter. Reflecting the market, variable investment income fell below our quarterly outlook expectation on the basis of returns on venture capital and real estate equity funds. In total, net income for the quarter was $14 million, driven by losses on opportunistic investment sales in Japan, which offset the tax impact on the gain generated by our recent Japanese A&H reinsurance transaction. Shifting to MetLife's business performance in the quarter, I will start with our U.S. Group Benefits results. Adjusted earnings totaled $307 million, up substantially from the prior year, when COVID-19 claims were more elevated with benefit ratios reverting to pre-pandemic seasonal norms. The momentum we've seen over the past several years for this franchise business continued in the quarter. We are strategically well-positioned…

Thank you, Michel, and good morning. I will start with the 1Q ‘23 supplemental slides, which provide highlights of our financial performance and an update on our liquidity and capital positions. In addition, we provided some supplemental detail of our investment portfolio given the heightened focus recently. The appendix also includes slides, which provide our full year 2021 and 2022 adjusted earnings re-casted for the new LDTI accounting basis. Starting on Page 3. We provide a comparison of net income to adjusted earnings in the first quarter. Net investment losses were above trend, primarily driven by sales of fixed maturity securities in Japan. Management took the opportunity to reposition some of the U.S. dollar portfolio to help mitigate some cash tax relating to our recent A&H reinsurance transaction, enhance net investment income, and improve asset liability management within the Japan business. These sales were neutral to a net positive to Japan's solvency margin ratio which is expected to be approximately 725% at the end of March. In addition, net investment losses in the quarter included an increase in the current expected credit loss or CECL allowance, primarily in our commercial mortgage loan portfolio given the current environment. That said, the portfolio remains well positioned and I'll provide more details shortly. We have itemized a new reconciling item between net income and adjusted earnings as a result of LTDI called market risk benefit, over MRB gains and loss. For certain products such as variable annuities with market related guarantees, the change in fair value excluding changes attributable to non-performance risk is recognized in net income each quarter. Similar to certain variable annuity guarantees previously classified outside of adjusted earnings, we'll also now identify MRB gains and losses as a reconciling item between net income and adjusted earnings. This loss was partially…

Thank you. [Operator Instructions] And our first question is from the line of Tom Gallagher with Evercore ISI. Please go ahead.

Good morning. Couple of investment questions. So John, the 19% of office CMLs that mature in ‘23, you guys said 36% of them have been resolved so far through the end of April. Can you just elaborate a bit on what's actually happening there? What does resolved mean? I know, I think you mentioned either pay down or extended. As you're going through that process, are you – are most of them actually paying off a maturity? I assume there's not a lot of liquidity out there, so you're probably extending more than you're seeing payment in principle at the end here? And then also what kind of yields are you getting, assuming you are extending a lot of these or restructuring? Are you getting yields commensurate with the higher risk in the market for that asset class right now or are you having to subsidize amid all? Sorry for the rapid fire questions, but wanted to just get a better sense for what's happening.

Good morning, Tom. It's Steve, and thanks for those questions. And talking about kind of what's happening, how we're managing the portfolio today. And John did give some high-level numbers. And when you look at how we're actually managing the portfolio, and there of course are a number of ways to resolve, most of what we're doing right now is on extending, but those are all extension options that are part of the original contract, where it's the borrowers' option to extend or not. And when they do, they still have to meet all of the various restrictions and requirements of the contract, including financial status, terms and conditions and the like. And there's usually a fee paid with it too. And they're generally all that market. So that's where we do see a lot of the activity in resolving the portfolio. And then looking at the -- we have conversations with virtually every borrower who has a maturity coming up this year. And basically, I think most of the borrowers who have that extension option probably will exercise them. We actually are seeing payoffs though, across the portfolio as well, so I think that that's a strong result too. I think, when we look at sort of numbers of loans, probably on the order of a quarter the loans, we're actually paying off to. So we're actively managing the portfolio as we always do, with obviously a heightened sense of attention today, but very confident. And John gave numbers, we think that there will be a very, very small number of -- or closures likely when we're through this year.

Okay. Thanks.

And your second question was, well, I can expand. I sort of answered your second question just saying the extensions are at market, but -- and also what I'd say is, yeah, this is a market where we're very picky. And looking at all of the office -- well, frankly, across all of the commercial loan space, we're getting kind of a minimum of 200 basis points over likely indices on floating rate loans or on treasury indices. And if we were to do an office, it would probably be at least 100 basis point premium over that too. So it's a market, where again you have to be very cautious, but there are opportunities as we've seen through other cycles in the past.

That's really helpful. And just a quick follow-up. Last year, at the end of '22, I think you had a big increase in CM 3-rated (ph) loans that had an adverse impact on RBC. Can you talk about what you expect for migration positive or negative for '23?

Yeah. And I think, first, we probably want to just address what happened with those numbers for the 2022 migration, because it's a fairly unique circumstance. I mean we do a reasonable amount of floating rate loans about 30% of our portfolio are in floating-rate loans. And just the way the mechanics of those LTV calculations work, there are lags involved. Net operating income is a three-year average, so when you think about something like caps, those basically kind of get delayed in how they work into the actual calculations. And so we do see that migration, but again over time, that cap income will also get incorporated in, obviously depending on the overall interest rate environment, so when we look at it, we're not really concerned that that's a credit issue. It's really just more the mechanics of the formulation and the timing. So that's what really is driving it. We wouldn't expect significant negative deterioration across the portfolio other than just the mechanics.

Okay. Thanks.

And next, we move on to a question from Erik Bass with Autonomous Research. Please go ahead.

Hi. Thank you. Maybe, Steve sticking with you for one and maybe just stepping back, I was hoping you could provide sort of an estimate as you think of kind of a more severe stress scenario for commercial real estate and office in particular. How do you think about what the potential capital impacts are in total if you add up impairments and ratings migration?

Thanks, Erik. That's certainly is something that we spend a lot of time looking at and we regularly stress test the portfolio. We've just gone through another round of that testing, no surprises, just given what's happening in the market. And what I'd say, summary is, we're very comfortable with the portfolio. The implications of severe stress tests are really very modest. And what we did in our most recent stress test scenario is, we assume that all valuations across the entire commercial mortgage loan portfolio declined by 30% to 35% from where they are today. So think about that. That's pretty severe. And then you work that through in terms of impact on net operating income, loan migrations, foreclosures, REO impacts. The net impact to us from a capital perspective, we estimate, would really only be about 10 to 15 RBC points over three years. So when you really put that in the context of what it means to capital, it's very, very modest impact. And I think that is a very severe stress case as well. So I think it just -- it points to the overall strength of the portfolio and the overall strength of our capital.

Thank you. Very helpful perspective. I guess, maybe turning to the business. For Latin America, you continue to see strong growth and it looks like you're running well ahead of what your guidance would imply for 2023 earnings even with some of the headwinds from VII and encaje (ph) this quarter. So I guess, is there anything unusually strong in the underwriting results in 1Q or is $200 million plus of run rate earnings kind of a reasonable expectation?

Yes. Hi, Erik. This is Eric. So let me shed a little bit more color around LatAm, first, and then answer your question. So we have, as you know, a significant footprint in the three largest markets in the region. We are market leaders with a very strong brand in Mexico and Chile and a very fast growing presence in Brazil. Our strategy around the region is really centered around three pillars. One is protecting the core. The other one is growth through diversification. And all that underpins through a transformation to meet our customers' and our partners' evolving need. So I can give you a couple of examples that -- of the execution of this strategy around the region. So in Mexico, which is our third largest market globally, we have a very unique worksite government franchise that continues to grow very nicely, but in parallel, we've been very successful in diversifying and expanding that distribution reach into the private sector both in retail and group. In Chile, where we have a very strong face-to-face agency franchise, we're growing very fast our bancassurance and third-party distribution. And then in Brazil, which now represents roughly 20% of the region's sales, we're also growing very, very fast with 60% year-over-year this quarter alone. And there the focus is really on bancassurance and third-party distribution, so that continued momentum across the region really reflects the strength and diversity of our distribution channels and product offerings combined with the technology investments that allow us to continue to differentiate for our customers and our distribution channel. So overall, we believe we're really well positioned in the region to capture the growth opportunities that these markets that are still underpenetrated and underserved have to offer. Now going back to this quarter's results and your question particularly: This was another strong quarter on the heels of a record year, but as mentioned by John, this quarter strong results included about roughly $20 million of favorable underwriting really driven by seasonality and overall favorable claims experience. But that being said, we believe that the guidance we provided is still a reasonable run rate for the remaining of the year for the region. So I hope this helps, I give you a little bit more context around LatAm.

Yes. Thank you.

Next we go to the line of Tracy Benguigui with Barclays. Please go ahead.

Good morning. Just want to touch upon VII. In today's environment, do you still feel like $500 million of quarterly alternative asset returns is still an appropriate run rate? And if you can also touch upon what you're seeing intra quarter?

Hi, Tracy. It's Steve. I guess I'd go back to how we talk about VII fairly consistently. And recall, we're not trying to predict quarterly, monthly, interim returns. I mean we really set our projection based on our long-term performance track record in the classes. And that's how we've come to the 12% number, 3% a quarter. So that's always our standard projection. Certainly, as we go through the year, we do look and given the lag, we can look and try and make some connections to what's happening in the markets. And I think that kind of relates to a little bit of what John talked about on our performance, although venture capital certainly was something that everyone was focused on for a while, so I think we did see those negative returns come through in the last quarter. So again looking ahead, I mean, I'd still look at what the overall market has done in the previous quarter just given the lag that will serve as some directional indicator for where we are. And I think our view is always that our portfolio should be less volatile and probably less extreme on returns than the overall market. So again I think, compared to last quarter, venture capital took a big hit across the rest of the portfolio. We actually saw pretty decent returns and looking at the LBO portfolio and some of our specialty sector like power, infrastructure, energy and those sorts of portfolios. So there is performance and I guess, I'd just look at the overall market as an indicator.

Yeah. And I would just maybe add, Tracy. I mean I think obviously Q1 is a -- year-end marks. We're moving into now Q1 -- Q2 being off of Q1 results, so I think directionally we would be kind of optimistic that it would improve from Q1. Maybe we don't revert back to plan, but I think we're on kind of an upward trend.

Got it. And the first quarter was an active FABN quarter, you raised $3.7 billion. And some of these coupons not surprisingly were much higher than what we've seen historically. So my question is, do you feel like this product is attractive in today's environment or you could still earn like a 200, 300 spread by reinvesting or was the first quarter activity more a function of refinancing maturing issues?

I'd say both. It was elevated activity-wise just because of maturities that we wanted to refinance, but we manage the program very actively. And it still meets all of our target thresholds for returns and income on the portfolio, so we're very happy with the returns.

So what kind of assets are you reinvesting in, in today's environment to make that return?

Yeah. And again you have to go and look at the maturity because again it's still overall match portfolio, but what we're looking at are really mostly fixed maturities, structured finance, some private assets, not much in the way of real estate these days.

Got it. Thank you.

Our next question is from Jimmy Bhullar with JPMorgan. Please go ahead. Mr. Bhullar, do you have your phone muted, we don't hear you. We will attempt to come back to him. One moment, please. Next, we'll move on to the line of Ryan Krueger with KBW. Please go ahead.

Hi. Thanks. Good morning. You addressed most of this, but I just had one more question on CM ratings. When you do extend commercial mortgage loans, does that trigger resetting LTV and all the metrics that go into the CM ratings or does it kind of maintain the prior metrics that already existed?

I mean, Ryan, I'd really relate it more to just our overall valuation process. When loans get refinanced or extended, there's a valuation that's right in line with our normal valuation process, so -- and like I said, most of the extensions we're doing are extensions that are at borrower's options who've met all the financial criteria required for the loan, so we wouldn't expect to see migration as a result of that.

Okay. Got it. And then just one on retirement spreads that came in quite high on a base level excluding VII. Is that a level that you think in the current rate environment can be maintained near term?

Good morning, Ryan. It's John. So like you said RIS spreads, I think overall 117, but ex-VII, were very strong in the first quarter at 137. And just recall, our overall all-in range was 135 to 160. So again, if you kind of add back a normal contribution to VII that would have been certainly high end of the range. And look, I think we highlighted this on the outlook call. We did think that the first half of '23, certainly based on the forward curve would have, I'll say, the higher end of spreads just given our in the money caps. We probably think Q2 has some kind of similarity to Q1 at this point for ex-VII spreads. And then we'll need to see how the forward curve and how rates progress through the rest of the year.

Great. Thank you.

And next, we move to a question from John Barnidge with Piper Sandler. Please go ahead.

Good morning. Thank you very much for the opportunity. Can you maybe talk about persistency of renewals in the group business? We've heard other participants talk about letting business walk that didn't match pricing objectives with this renewal season after a couple years of elevated experience, so curious your thoughts there. Thank you.

Thank you, John. It's Ramy here. Maybe let me just give you the punchline in terms of the results we're seeing. Our persistency in terms of the Q1 renewals was extremely strong and it was higher than prior year across all of our major markets. So we're seeing very strong persistency alongside renewal actions that were very much in line with our expectations, so we're very pleased about the outcome as we go into the year. Maybe just to give you a bit of flavor on that: We've always talked about the group business as a business where price is important, but it's also a business where you can differentiate on many factors beyond price, right? And you certainly see that in our national accounts franchise. Our average customer has been with us for more than two decades. You see that in the very wide breadth of our products which allow us to be much more consultative with our customers and meet their needs. And you also see that because of our scale. So our scale has continued to afford us the ability to invest in our capabilities across the business and therefore drive greater persistency and stickiness with our customers, so all in all a very strong persistency as well as a rate action story for us in the first quarter.

Great. Thank you. And as a follow-up question, on Raven Capital. I see you, you obviously, announced another buyback authorization, but can you talk about market volatility and opportunities that may create to do other acquisitions either in products or geographic interest specifically? Thank you.

Yeah. Hi, John. It's Michel. The first thing I would point to is really the consistency in terms of our capital deployment. And you can see that over, I would say, a number of years and it was again evident in the first quarter. So if you just look at the first quarter, one, we saw sales growth across most of our key markets and businesses, so we're deploying capital to support responsible growth. We are active from an -- we were active from an M&A perspective. We announced the acquisition of Raven Capital Management, which adds an attractive adjacency to our main business which we think we can scale over time. We deployed $389 million in dividends and we announced a 4% increase in our dividend. Again if you look at the increase since 2011, 9% annual compound rate increase. And then we bought $780 million in our shares in Q1, another $223 million in April. And we have a new $3 billion authorization from our Board. Our liquidity at the -- we're above our liquidity buffer of $3 billion to $4 billion at the Holdco, so if you take all of these together, I think they signal sort of confidence in terms of our financial strength and the free cash flow generation capabilities of our businesses. So again, we're confident in terms of how we're positioned. And we'll continue to sort of explore M&A opportunities, provided those fit strategically or accretive over time, meet our minimum risk adjusted hurdle rates and the like. And we'll remain also disciplined on that front as we always have been. So hopefully, that gives you some color.

It does. Thank you very much.

Next, we go to Suneet Kamath with Jefferies. Please go ahead.

Thanks. Good morning. Ramy, I was hoping you could unpack the group disability results a little bit in terms of what you saw in the quarter. We did have one company yesterday talked about sort of a pretty significant improvement in loss ratios and then actually persisting for the balance of the year. I'm just wondering how your business is doing and if there's any expectation for ongoing improvement as we move through '22 -- sorry, '23?

Good morning and thank you for the questions. So inside our non-medical health ratio, disability business is a contributor to that. And we have certainly seen favorability in our disability results this quarter, and that favorability came in through both lower incident rates as well as stronger recoveries. And when we think about that favorability, there are some external factors in the environment and there are some internal drivers as well. So externally, you could look at the low unemployment levels as well as the fact that we're now clearly out of the pandemic environment, which kind of decreased the pressure on the STD line. So a favorable environment in Q1. Internally, when you look at disability, this is a product where our customers have complex needs. And here again, I would point to scale and investment you need to make here to really differentiate yourself in the marketplace and particularly differentiate yourself in terms of outcomes. So in our case, that's come from investments in our human capital. We've built a world-class team of clinicians who diligently work on returning people to health. We deploy data and analytics on our pricing, underwriting and our claims process. We have a world-class capabilities in terms of leave and absence, which again when packaged with LTD drive greater customer value and persistency in our books, so certainly a favorable disability ratio. As we think about the rest of the year, we continue to -- from a pricing perspective, we continue to bake in a load for softness in the environment. I mean it's so, that from a pricing and renewal perspective we continue to look at that and continue to bake in a pricing loan to make sure that our margins are resilient should we see softness from the claims side.

Okay. Got it. And then maybe just pivoting to Steve on the CML portfolio. I know that Class B is a pretty small percentage of the office book, but as we think about those scheduled maturities for '23 and '24, any sense of, is it -- like what's the piece of it related to Class B? Have you resolved any of the Class B loans? Just some color on that would be helpful.

Hey, Suneet. We didn't -- we haven't broken out the maturities. Again I think, if you look at the overall resolution and the path we're down, it's very strong for the overall portfolio, extension options were they are provided at market with fees and a good number of payoffs to -- so I'm sorry. I don't have the specific breakdown, but I'm very pleased with the overall structure of our resolution right now.

Okay. Thanks.

Next, we go to a question from Elyse Greenspan with Wells Fargo. Please go ahead.

Hi. Thanks. Good morning. My first question, I believe in your prepared remarks you guys mentioned that you might want to right-size the VII portfolio over time. Was that an overall comment on the portfolio, or was that just related to the corporate segment?

Hey, Elyse. It's John. Yeah. I made the comment. I mean we -- more because, as you've seen, we probably have a little bit of outsized sensitivity in C&O for VII. It was a function of a number of things. Remember, last year, a year ago, we were able to monetize about $1 billion of our private equity portfolio. We also, just with some asset and liability management, moved a bit more into Corporate & Other. I would call that a holding pattern for now. And that's really the comment I'm making. And so it does, I think, on the margin cause us to probably -- we're not stopping our investment, but it's -- relatively speaking, it's the new commitments are a bit slower. But they're -- we're still doing that. We want to always invest through the cycle, but that was the gist of the comment.

And then your direct expense ratio, 12%, was pretty stable on year-over-year. And outside of group, it doesn't look like expenses moved much. How much active expense management is going on? And how much underlying pressure are you guys seeing from wage inflation or other drivers?

Yeah. It's John again, Elyse. As you said, it was a good result for the quarter. Look, how much -- a lot of active management, a lot. And inflation is -- has been challenging. And I think we've seen that throughout the insurance industry in -- on both sides, and it's a challenging environment. And as a result, it takes active management. And I think our -- the culture here has been really strong around efficiency mindset. We continue to use that mentality to build capacity so that we can continue to invest in -- through these cycles and not let things like inflation slow us down. And it gives us optionality should we see more stressful environment. So I think the team has done a really, really great job, but it's -- every day, it's active management.

Thank you.

And our next question will come from Alex Scott with Goldman Sachs. Please go ahead.

Hi. Good morning. First one I had is for -- on Asia. Can you talk about the organic growth there and particularly how U.S. rates and I guess, JGB (ph) rates are impacting your annuities business there and in particular your ability to sell new product and have attractive product in the market?

Hi, Alex. It's Lyndon. Yes, look, we really are benefiting from the U.S. rate movement. It's really giving us an advantage as we compare to the Japanese rates. We've seen demand for the foreign currency products go up consistently over the year. If we look at fourth quarter sales, annuities were very strong and that continues as we go into the first quarter. So as far as rates go, it really puts us in an advantage as we're selling this product, but if you look at the fluctuation in the foreign currency, that is -- really kind of makes the market tentative going into the product. So overall I think rates have really benefited us in this environment.

And then along the same lines, just, in LatAm, I just wanted to kind of peel back the organic growth a little bit and see if you can tell us a little bit about what you're doing, whether it's on distribution or actions that you're taking that are allowing for such strong organic growth and seemingly market share taking.

Yeah. Hi. This is Eric. So yeah, as I mentioned earlier, really it’s a combination of diversifying our distribution, combined with the introduction of new digital tools and active distribution growth through different channels. And our – again, our breadth and depth of our franchises in the key largest markets across the region.

Thank you.

And ladies and gentlemen, we have no more time for questions. I will turn the call back to John Hall, Global Head of Investor Relations.

Thank you for joining us today. And we appreciate your patience with the technical difficulties at the beginning of our call. We look forward to seeing you over the course of the quarter and have a nice day.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.